Sensex Up Over 240 Points; Rupee Touches Record Low

Tue, 14 Aug 12:30 pm

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After opening the day in the green, stock markets in India have continued their momentum and are presently trading on a positive note. Sectoral indices are trading on a positive note with stocks in the IT sector, realty sector and energy sector witnessing maximum buying interest.

The BSE Sensex is trading up 242 points (up 0.6%) and the NSE Nifty is trading up 81 points (up 0.7%). Both, the BSE Mid Cap index and the BSE Small Cap index, are trading up by 0.3%.

The rupee is trading at 69.88 to the US$.

Page Industries share price and Vakrangee share price are in focus today on the announcement that Page Industries will replace Vakrangee in the MSCI India Index.

As per the news, the replacement will take effect as of the close of August 31.

The above development led Vakrangee witness selling pressure, and accordingly the scrip of the company fell around 10% on the BSE.

In the news from macroeconomic space, data released by the Central Statistics Office showed Wholesale Price Index (WPI) dipped to 5.09% in July, cooling off from 4-year highs seen in June.

This comes as a good news for the Indian economy on the inflation front as retail inflation in July also came in at a nine-month low of 4.17%.

Market participants expect that if the August print for retail inflation too comes at around 4% or below, there is an expectation that the monetary policy committee (MPC) will not be in a hurry to go for another rate hike in the October policy review.

How this pans out in the coming months remains to be seen. Meanwhile, we will keep you updated on all the developments from this space.

In the news from currency markets, extending its fall seen yesterday, the Indian rupee today breached the 70-mark and hit a new low of 70.08 for the first time against the US dollar.

Yesterday, the domestic currency had recorded its biggest intra-day fall in five years amid a global currency crisis and concerns over the risk of contagion from Turkey's financial-market turmoil.

The Turkish lira sent all emerging market currencies sharply lower yesterday. Also, the lira has fallen about 45% against the greenback this year on worries over Turkish President Tayyip Erdogan's increasing control of the economy and a deepening diplomatic rift with the United States.

Note that the rupee has been witnessing selling pressure against the US dollar since the start of this calendar year. This is evident from the chart below, which shows the quantum of US dollars a 100-rupee note can buy and how this rate has been declining over the past few months:

Indian Rupee in a Steep Decline

What does the fall in rupee mean for the Indian economy?

A depreciation in rupee means importers buying goods and services at a higher rate that earlier. This doesn't bode well for a developing economy that relies heavily on imports.

Also, India imports most of its oil requirements. So, a fall in rupee leads to a consequent rise in the import bill. The depreciation of the rupee will also add to crude oil's rising cost.

On the corporate side, companies who have taken foreign loans from abroad will be impacted. The repayment obligations in terms of principal and interest will rise, leading to a dent in the cash flows and financials.

Further, companies who import a majority of their raw material requirements will get impacted provided they have not hedged their foreign currency exposure.

Looking at the brighter side, rupee depreciation brings a cheer on the exports front.

A depreciating rupee will provide a much-needed cushion to falling exports. However, a falling rupee will not be the only factor to boost exports. There are certain structural issues too which the government needs to address.

Ankit Shah has explained how the depreciation in rupee is linked to foreign investor outflows and forex reserves in one of his editions of Equitymaster Insider. You can read the entire article here (requires subscription).

To know what's moving the Indian stock markets today, check out the most recent share market updates here.

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